Financial Advisers FAQ

Q: What types of activities are regulated and require licensing under the Financial Advisers Act (FAA)?

The types of financial advisory services regulated under the FAA are as follows:

a) advising others concerning any investment product;
b) issuing or promulgating analyses or reports concerning any investment product;
c) marketing of any collective investment scheme including unit trusts; and
d) arranging of any contract of insurance in respect of life policies.

Q: Are activities involving life reinsurance regulated under the FAA or the Insurance Act?

Advising on life reinsurance policies and arranging of contracts of life reinsurance are regulated under the Insurance Act.

Q: Who is permitted to conduct financial advisory services regulated under the FAA?

Only licensed financial advisers and exempt financial advisers who are exempt under section 23(1) or (2) of the FAA are allowed to conduct financial advisory services under the FAA. Individuals providing financial advisory services on behalf of licensed financial advisers are required to be licensed as representatives. Individuals acting on behalf of exempt financial advisers are exempt from the need to hold a representative’s licence under the FAA.

Q: Who is exempt from holding a financial adviser's licence?

Banks, merchant banks, finance companies, insurance companies, insurance brokers registered under the Insurance Act, and holders of a capital markets services licence under the Securities and Futures Act (Cap 289) are exempt from holding a financial adviser's licence to act as a financial adviser in Singapore in respect of any financial advisory services. Individuals who provide financial advisory services on behalf of such institutions are exempt from holding a representative’s licence. However, exempt financial advisers and their representatives are required to comply with the business conduct requirements stipulated in the FAA.

Q: Under section 2 of the FAA, “financial adviser” means a person who carries on a business of providing any financial advisory service. If a person provides advice on securities which is incidental to his securities dealing activities, will he be deemed as carrying on a business of providing financial advisory services?

The term “carrying on a business” is not defined in the FAA. MAS would regard any activity which is conducted with system, repetition and continuity as carrying on of a business. Accordingly, a person would be considered by MAS to be carrying on a business of providing financial advisory services if advice is given or recommendations are made systematically, regularly and in a continuous manner, whether or not the person receives any remuneration for
providing the financial advisory service. In respect of giving of advice or making recommendations on a one-off basis, MAS’ view is that such activities are less likely to amount to carrying on of a business.

Q: Would financial advisory services provided by a person outside Singapore using the Internet medium be caught under the FAA?

A person outside Singapore who engages in any activity through the Internet which is intended to or likely to induce the public (or any section of the public) in Singapore to use any financial advisory service provided by him will be deemed to be acting as a financial adviser in Singapore. Such a person would contravene section 6(1) of the FAA unless he holds a financial adviser's
licence.

Q: Would individuals intending to provide financial advisory services be required to pass any proficiency examinations?

Individuals employed by licensed financial advisers and exempt financial advisers to provide financial advisory services are required to pass the relevant modules of the Capital Markets and Financial Advisory Services Examination, which comprises modules on rules and regulations for financial advisory services and product knowledge and analyses. Details of the new examination requirements are spelt out in the Notice on Minimum Entry and Examination Requirements for Representatives of Licensed Financial Advisers and Exempt Financial Advisers [Notice No. FAA-N07]. Both the Notice and FAQs on the Notice are available on the MAS website.

Q: Can a representative act for more than one financial adviser?

A representative can only act for one financial adviser. The only exception is if a representative acts for two or more financial advisers which are related corporations.

The objectives of the one-representative-one-financial adviser rule are two-fold:
(a) to secure clarity for investors about the status of representatives, the financial advisers they represent, and more importantly, where responsibility rests for complaints and redress; and
(b) to ensure that the financial advisers closely monitor and supervise their representatives at all times.

The one-representative-one-financial adviser rule does not restrict the product range that a financial adviser can market or give advice on. Financial advisers such as banks, fund managers, securities firms and insurance companies that distribute life insurance products and unit trusts are free to enter into contracts to sell one another's products and, hence, expand the range of products they can market or give advice on.

Q: Life insurance companies would be able to sell one another's products when the FAA comes into effect. Is the insurance industry ready for this new development? Does this go against the one-representative-one-financial adviser provision under section 12 of the FAA? Would this development benefit consumers?

Life insurance companies, especially the smaller ones, may see value in cross selling one another's products. Since not all life insurers offer all types of life insurance products, allowing them to cross sell one another's products will broaden their product offering, thus giving consumers a wider range of products to choose from.

The one-representative-one-financial adviser requirement will not be compromised as an insurance agent can only have one financial adviser (which is the life insurer with whom he has an agency agreement), and can only distribute those products authorised by that life insurer. As an exempt financial adviser, a life insurance company must closely monitor and supervise its agents, and be responsible for the conduct of its agents in respect of their provision of advice and distribution of investment products offered by other financial institutions.

Q: What are the rules governing the use of the term "Independent" by financial advisers?

The use of the term “independent” is restricted under regulation 21 of the FAR. Regulation 21 states that no licensed financial adviser or exempt financial adviser is permitted to use the word "independent" or any similar term in its name, description or title, or to promote or advertise its services, or in respect of any of its advice or recommendation, unless it:
(a) does not receive any commission or other benefit from a product provider which may create product bias and does not pay any commission to or confer other benefit upon its representatives which may create product bias;
(b) operates free from any direct or indirect restriction relating to any investment product which is recommended; and
(c) operates without any conflict of interest created by any connection to or association with any product provider.

A financial adviser must inform all of its representatives, in writing, as to whether it may or may not use the word “independent”. No representative is allowed to use the word “independent” in acting as a representative of the financial adviser if the financial adviser has informed him that it may not do so.

Q: What is the objective of prohibition orders made under section 59 of the FAA?

The objective of a prohibition order is to keep unfit persons from engaging in any or all of the financial advisory services regulated under the FAA. The ability of MAS to issue a prohibition order would be especially useful in cases where there is a need to prevent a representative of an exempt financial adviser from conducting financial advisory activities. As these representatives are not licensed by MAS, revocation of licence is not an action MAS may take. This helps to ensure that only fit and proper persons are permitted to participate in the financial services industry. An order will only be issued in cases where very serious offences have been committed.

Q: What does the exemption under regulation 27(1)(d) of the FAR cover?

Under regulation 27(1)(d) of the FAR, a person resident in Singapore who acts, whether directly or indirectly, as a financial adviser in giving advice, or in issuing or promulgating analyses or reports, concerning any investment product (other than life policies), to not more than 30 accredited investors on any occasion is exempt from holding a financial adviser’s licence under section 23(1)(f) of the FAA.

Q: Under what circumstances will section 27 of the FAA on recommendations made by licensees not apply?

Section 27 of the FAA will not apply to licensees, exempt financial advisers and their representatives when they make a recommendation in respect of:
(a) any investment product by way of a research report intended for general circulation, where the report is not made with regard to (and it is so stated in the report) the specific investment objectives, financial situation and the particular needs of any person who may receive the report;
(b) any capital markets product to an accredited investor or a person whose business involves the acquisition or disposal of or the holding of capital markets products (whether as principal or as agent);
(c) any life policy to an accredited investor; or
(d) any Government securities.

Q: Why is MAS allowing the use of introducers by financial advisers? Who may be appointed as an introducer?

Prospecting for clients is an essential part of a financial adviser’s business. The use of introducers by financial advisers to generate business leads would allow financial advisers to spend less time prospecting for clients. This will enable financial advisers to focus their resources on providing higher valueadded financial advisory services to clients. The use of introducers or mere
referral arrangement by financial advisory service providers is also allowed in other jurisdictions.

An introducer may be a corporation, an individual, a licensed financial adviser or an exempt financial adviser. Representatives of a corporation, a licensed financial adviser or an exempt financial adviser are also allowed to conduct introducing activities if such activities are carried out on behalf of their principals.

Q: What is the rationale for discouraging financial advisers from appointing introducers who carrying out introducing activities as their sole business activity or full-time occupation?

MAS expects financial advisers engaging introducers to exercise proper control over introducers they have appointed. Any improper conduct on the part of introducers could potentially give rise to market conduct problems and cause public nuisance. This may tarnish the image of the financial adviser and affect public confidence in the financial advisory industry.

MAS believes that one of the main reasons for financial advisers to appoint introducers is to tap the clientele base of the primary business activity of the introducers. Introducers who are not conducting introducing activities as their sole business activity or full-time occupation are less likely to engage in aggressive business tactics when soliciting prospects for financial advisers, as it is in their interest to protect their reputation and build good relationships with their clients. MAS will monitor developments in the market and review our policy where necessary.